October 23, 2018 / 12:05 PM / a month ago

UPDATE 1-UK factory orders slide as Brexit uncertainty bites - CBI

(Adds detail and background)

By William Schomberg

LONDON, Oct 23 (Reuters) - British factory orders fell at the fastest pace in three years, and the lack of clarity about how the country will leave the European Union has made manufacturers their least upbeat since the Brexit referendum in 2016, a survey showed on Tuesday.

With barely five months to go until Brexit, factories scaled back investment plans in the August-October period and expected growth to stall in the coming three months, the Confederation of British Industry (CBI) said.

Britain’s economy slowed after the Brexit vote but has held up better than most economists expected at the time of the vote.

However, much of the growth has come from spending by consumers. Companies have been more cautious about investment given the risk of barriers to trade with the EU after March.

Samuel Tombs, an economist with Pantheon Macroeconomics, noted the CBI survey was conducted before last week’s EU summit, at which British Prime Minister Theresa May failed to achieve a breakthrough in negotiations.

“As a result, manufacturers’ concerns about the outlook likely are even more pronounced now than the CBI’s survey indicates,” he said.

The CBI’s quarterly order book balance stood at -6 in the three months to October, a sharp fall from +15 in July and the lowest since the three months to October 2015.

The decline was caused by weakness at home and abroad, possibly reflecting a slowdown in the global economy.

The monthly order book balance also fell to -6 in October, the sharpest fall in two years and below the median forecast in a Reuters poll of economists for it to remain at -1.

“This is a sobering set of figures demanding immediate action at home and abroad,” CBI economist Rain Newton-Smith said. She called on British finance minister Philip Hammond to help factories in his Oct. 29 budget statement.

“Planned investment is being scaled back in the face of deepening Brexit uncertainty, so it’s vital that the chancellor incentivises manufacturers to spend in areas that will help them become more productive.”

Manufacturers were also worried about staff shortages. Fears that access to skilled labour was likely to limit output over the next three months rose to the highest in over 40 years, the CBI said.

Manufacturing accounts for about 10 percent of total British economic output. The CBI said it expected overall economic growth to remain subdued, reflecting weak household income growth as well as the Brexit drag on investment.

Graphic by Andy Bruce, writing by William Schomberg, editing by Larry King

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